What the Nobel Means for Microcredit

Grameen Bank founder Muhammad Yunus promotes peace not by brokering treaties, but by uprooting poverty through entrepreneurialism

by Jeffrey Gangemi

On Friday, Oct. 13, Grameen Bank of Bangladesh and its founder, Dr. Muhammad Yunus, were awarded the Nobel Peace Prize for helping to establish the microcredit movement, which involves the granting of small loans to poor people with no collateral, across the developing world (see BusinessWeek.com, 12/26/2005, "Nobel Winner Yunus: Microcredit Missionary"). The Norwegian Nobel Committee's statement said it awarded the prize of $1.4 million to Yunus and the bank "for their efforts to create economic and social benefit from below." The statement continued, "Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty."

Still, when you think of the benefits of small loans, achieving peace and stability isn't the first idea that springs to mind. But it is exactly what Yunus, 66, is aiming for. While he may not be brokering treaties, he's actually promoting peace by uprooting one of the root causes of conflict: poverty. At the same time, he's demonstrating how effective entrepreneurialism can be.

Since its founding in 1983, for-profit Grameen Bank has lent more than $5.7 billion to over 6.1 million borrowers, 97% of whom are poor women, to help them establish small businesses and become self-sufficient. The default rate has been around 1%. An estimated 100 million people, including about 70 million people who were living at a dollar a day or less at the time of their first loan, are expected to participate in the movement by the end of this year, according to the Microcredit Summit Campaign, a group of supporters that in 1997 set the goal of reaching 100 million of the poorest families with microcredit by the end of 2005.

NOTABLE NOBELS.

The Nobel Committee has a history of awarding the Peace Prize to individuals and organizations that promote economic development. The 2004 award went to Wangari Muta Maathai of Kenya, who worked to bring income to people in Kenya through the planting of trees, while raising awareness about women's rights and the environment across Africa.

"I've always felt that the greatest threat to world peace was the global poverty crisis—seeing the competition for resources and how it leads to tension and violence," says Alex Counts, the president of Grameen Foundation (http://www.gfusa.org), a U.S.-based organization that works to replicate and adapt the Grameen Bank model around the world. "I really feel that the Nobel committee is right to view peace in a broad and not narrow sense," he says.

Tech heavyweights Vinod Khosla and Pierre Omidyar are already on board. Khosla, the veteran entrepreneur and venture capitalist, supports six microfinance institutions worldwide (see BusinessWeek.com, 10/4/2006, "Vinod Khosla Talks Shop"), and Omidyar, founder of eBay (EBAY), has given $100 million to start a microfinance fund at Tufts University (see BusinessWeek.com, 11/4/2005, "Tiny Investments, Big Changes").

MICROCREDIT EFFECTS.

"Professor Yunus is inspiring on so many levels," Omidyar says. "His work in microfinance has opened the door to a new perspective on business as a force for social good. As he points out, the poor are extremely entrepreneurial as a matter of survival. A microloan is a tremendous tool in the hands of the poor and economic self-empowerment can create a permanent path out of poverty. My hope is that his Nobel Peace Prize will draw more private capital to microfinance so that we can scale the sector effectively and make poverty history." The Gates Foundation recently declared microcredit to be one of its major objectives as well (see BusinessWeek.com, 5/2/06, "Microfinance: Services the Poor Can Bank On").